Funds to be Retrieved from Bahamas
In a case that will mark the first time the U.S. government has obtained an asset freeze issued by a foreign court and returned the frozen funds to American telemarketing fraud victims, the Federal Trade Commission today announced that consumers victimized by a fraudulent paging license application mill will share $337,780 out of funds that a defendant in an FTC case allegedly diverted to a Bahamian bank. The defendant is Robert Corey (also known as Michael Allen), who was a hidden principal in a company called On Line Communications, Inc. that, while headquartered in Las Vegas, Nevada, actually conducted business out of Los Angeles. The FTC charged the firm and its principals in January with making false claims to investors about the nature and value of the paging licenses it could obtain for them. Corey has agreed to disgorge a total of $362,500, of which $337,780 is for the refund pool, as part of a settlement that will end the FTC litigation against him. The FTC said it has been working with such agencies as the Securities and Exchange Commission, the Commodity Futures Trading Commission and the Justice Department to return funds hidden in overseas banks to American fraud victims, and this case is a successful example of that effort.
The FTC filed a complaint in the case at hand in a Nevada federal court. The complaint names On Line Communications, Corey and the firm's president, Richard Basile, and was part of "Project Roadblock," a coordinated federal-state campaign involving 85 law-enforcement actions against high-pressure telemarketing operations peddling high-tech investment offerings. The FTC alleged that On Line Communications charged investors from $5,990 to $12,900 to prepare and file applications for Federal Communications Commission paging licenses, claiming that the licenses were valuable, that investors would receive multiple offers by paging companies to purchase or lease the licenses, and that investors would not have to put up additional money to construct the paging systems. Licenses granted by the FCC give either shared or exclusive use of a paging frequency for a specific service area, but the defendants obtained only shared licenses, which means that a virtually unlimited number of persons or entities could acquire the right to use the same portion of the spectrum with the service area. As a result, the FTC alleged, consumers were unlikely to derive any income or profit from On Line Communications' licenses unless they were to build a paging system themselves.
The FTC said today that, once it learned that Corey had diverted assets to the Bahamas, the Commission requested the Department of Justice=s Office of Foreign Litigation to bring an action in a Bahamian court to freeze the assets and return them to the United states. The court issued a Mareva injunction freezing Corey's assets pending conclusion of the Bahamian proceeding.
Meanwhile, in August, the federal court in Nevada entered a default judgment against On Line Communications and Corey. At the same time, it accepted a settlement the FTC had reached with defendant Basile, which required him to turn over $39,150 in frozen cash and prohibits him from making a variety of false representations. The settlement announced today, approved by the U.S. District Court for the District of Nevada, in Las Vegas, on Nov. 5, 1996, supercedes the default judgment as to Corey.
Under the settlement, Corey returned $337,780 of the frozen assets to the United States for distribution to On Line Communications' clients. With the additional funds obtained by the FTC in its earlier settlement with Basile, the total redress fund for On Line Communications' clients is about $376,930.
In addition, the settlement with Corey prohibits him from making a variety of false claims about any investment offering, including false claims about the riskiness, liquidity, expected income or profit, market or resale value, or any other material aspect of the offer. The order contains specific prohibitions on false claims about FCC licenses, requires Corey to disclose that the FCC prohibits obtaining paging licenses for the purpose of speculating for profit, and includes a general ban on false claims regarding material aspects of any telemarketing offer.
The settlement also requires Corey to obtain a $300,000 performance bond for the protection of his customers before engaging in any type of telemarketing in the future. And it includes various record keeping requirements that will assist the FTC in monitoring his compliance.
The FTC received assistance in this case from the Securities Division of the Nevada Secretary of State's office and the Irvine, California, Police Department. The Commission vote to approve the settlement for filing in court was 5-0.
An FTC brochure titled "Telecommunications Scams Using FCC Licenses" [PDF]offers consumers tips on how to avoid becoming a victim of such schemes, and is available free to consumers from the FTC's Public Reference Branch at the address below.
NOTE: This consent order is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Consent orders have the force of law when signed by the judge.
Copies of the documents associated with this case are available from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710. FTC news releases, many related documents and other materials also are available on the Internet at the FTC's World Wide Web site at: http://www.ftc.gov.
(FTC File No. X960022)
(Civil Action No. CV-S-96-00055-LDG (RLH))
Bonnie Jansen, Office of Public Affairs
202-326-2161 or 202-326-2180
Bureau of Consumer Protection
Dan Spiro, 202-326-3288
Lisa Rosenthal, 202-326-2249